DIVORCE
AND TAX
When dealing with the legal and emotional issues of a divorce the last thing on your mind is TAX. Yet if couples don’t think about it there could be a third party in the financial settlement…THE TAXMAN and the divorce could end up costing even more than they expected.
With Divorce and Tax TIMING is everything!
The ability to transfer capital assets between spouses/civil partners without crystallising a tax charge is only available until the end of the tax year in which the couple SEPARATE not up to the time that the DECREE ABSOLUTE is obtained.
So if you separated after Christmas you may only have until 5th April 2007 to transfer assets without giving rise to a tax charge. If however you separated on 6th April 2007 you would have almost 12 months so TIMING REALLY IS EVERYTHING.
When that spousal tax treatment ceases the transfer of the capital asset will be charged to tax based on the assets’ market value which could be an expensive exercise.
There is some good news however and that is in respect of the matrimonial home. For most couples that will be the only capital asset that needs to be dealt with. As long as the home meets all the conditions to be treated as their “principal private residence” then the house can be disposed of up to three years after one or both spouses/civil partners have left the home without crystallising a tax charge. If there has been any business use, the home stands in extensive grounds, is owned by someone other than those living in it or you have another home as well then advice needs to be sought to ensure you can claim the relief.
Where either by consent or a Court Order it is decided that the family home is not to be sold or transferred to the other spouse for the time being but that one spouse can continue to reside in it until a certain future point in time, advice should be sought. This can have adverse tax implications and couples should be aware of the pitfalls.
For couples with business assets which need to be transferred it is worth noting that a relief can be claimed to holdover any chargeable gain depending on the TIMING of the transfer. Whether it is beneficial to claim that relief will depend very much on individual circumstances and advice should be sought.
Couples often forget overseas capital assets such as holiday homes. The transfer of a holiday home will have a tax implication in the UK and potentially in the country in which it is situated where individuals are UK resident and domicile.
Finally many couples forget that a divorce will make any existing will void and you should therefore make a new one without delay.
Holden Tax Consulting can help you, not only with tax advice on a divorce but also business and company valuations and drafting of wills.
When dealing with the legal and emotional issues of a divorce the last thing on your mind is TAX. Yet if couples don’t think about it there could be a third party in the financial settlement…THE TAXMAN and the divorce could end up costing even more than they expected.
With Divorce and Tax TIMING is everything!
The ability to transfer capital assets between spouses/civil partners without crystallising a tax charge is only available until the end of the tax year in which the couple SEPARATE not up to the time that the DECREE ABSOLUTE is obtained.
So if you separated after Christmas you may only have until 5th April 2007 to transfer assets without giving rise to a tax charge. If however you separated on 6th April 2007 you would have almost 12 months so TIMING REALLY IS EVERYTHING.
When that spousal tax treatment ceases the transfer of the capital asset will be charged to tax based on the assets’ market value which could be an expensive exercise.
There is some good news however and that is in respect of the matrimonial home. For most couples that will be the only capital asset that needs to be dealt with. As long as the home meets all the conditions to be treated as their “principal private residence” then the house can be disposed of up to three years after one or both spouses/civil partners have left the home without crystallising a tax charge. If there has been any business use, the home stands in extensive grounds, is owned by someone other than those living in it or you have another home as well then advice needs to be sought to ensure you can claim the relief.
Where either by consent or a Court Order it is decided that the family home is not to be sold or transferred to the other spouse for the time being but that one spouse can continue to reside in it until a certain future point in time, advice should be sought. This can have adverse tax implications and couples should be aware of the pitfalls.
For couples with business assets which need to be transferred it is worth noting that a relief can be claimed to holdover any chargeable gain depending on the TIMING of the transfer. Whether it is beneficial to claim that relief will depend very much on individual circumstances and advice should be sought.
Couples often forget overseas capital assets such as holiday homes. The transfer of a holiday home will have a tax implication in the UK and potentially in the country in which it is situated where individuals are UK resident and domicile.
Finally many couples forget that a divorce will make any existing will void and you should therefore make a new one without delay.
Holden Tax Consulting can help you, not only with tax advice on a divorce but also business and company valuations and drafting of wills.